LONDON, Dec 23 (Reuters) - The need to recapitalise and restructure will drive companies to raise more cash next year, and they will turn to equity capital markets (ECM) to do so as bonds remain a costly source of financing, bankers say.
Global bond issuance almost halved to $3.81 trillion this year, led mainly by a sharp drop in issuance by financial companies, Thomson Reuters data showed on Tuesday.
There is little chance of a strong pick-up in activity next year as spreads will widen further due to the deepening economic downturn, and more companies will struggle for access to to the bond market if they fail to renew revolver or syndicated loan agreements with their banks.
Global equity issuance, including initial public offerings, follow-ons and convertible bonds, dropped less severely than bond issuance, sliding 35 percent to $629 billion from 2007's record level.
"With limited debt financing available or at least debt at an attractive price, equity becomes a very logical additional source of financing," said Viswas Raghavan, head of international capital markets at JP Morgan (JPM.N).
The bank came top for arranging equity issues and syndicated loans this year.
"Corporates will not want to take on too much leverage in a market where deleveraging is key," Raghavan added.
U.S. and European investment-grade companies -- excluding financial companies -- have raised record amounts in bond markets this year, with each region pulling in $247 billion, despite weeks of unprecedented volatility and record-wide credit spreads.
Activity in the rest of the world was more subdued.
Globally, investment-grade non-financials raised $570 billion in the past 12 months, in line with 2007 and 2006 levels, and bankers are urging clients to get any refinancing done as early as possible before the cost of borrowing rises any further.
"Financials have clearly been much less active than we have seen historically, but the corporate market has been robust and I think we're going to see more of the same in the first half of 2009," said Andrew Jones, managing director of European bond syndicate at Barclays (BARC.L).
Barclays topped the global bond rankings for the second consecutive year, followed closely by JP Morgan.
The financial sector, which suffered a 54 percent drop in bond issuance in 2008, will lead the way in raising cash in equity markets, bankers said.
"In 2009, we will see continuing recapitalisations not only of financial institutions but of other companies," said Craig Coben, managing director in European ECM at Merrill Lynch MER.N.
That includes companies with strong businesses but whose balance sheets, with too much debt and not enough equity, are not ideal for the current market environment, he added.
Follow-on offerings accounted for the greatest share -- 68 percent -- of ECM activity, with the amount raised -- $430 billion -- one of the highest on record.
"A re-equitisation of the world ... will continue over the next two to three years. In the last three-four years, a lot of equity was taken out of the market through corporate M&A paid in cash and buy-backs," said Emmanuel Gueroult, head of European equity capital markets at Morgan Stanley (MS.N).
"Companies have restructurings or refinancing to do and the weakest have limited access to the debt markets," he added. (Editing by David Holmes)